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UK VAT laws to change to support non-EU online sellers

Non-EU businesses will be able to use the UK's 'mini one stop shop' (MOSS) scheme to account for VAT on sales of digital services to consumers in EU member states from 1 January 2019, provided they are registered for UK VAT for other purposes.13 Sep 2018

This simplification may, however, be short lived, according to tax expert Catherine Robins of Pinsent Masons, the law firm behind Out-Law.com.

"If the UK leaves the EU on 29 March 2019 with no deal, government guidance on the implications of a no-deal Brexit says that non-EU businesses - including, by that stage, UK businesses - will only be able to continue to use MOSS if they register for the VAT MOSS non-Union scheme in a country which remains in the EU," she said.

Also from 1 January, a €10,000 threshold will be introduced for annual sales of digital services within the EU. Businesses whose sales of digital services across the EU do not exceed €10,000 in any given year, as well as the preceding year, will only be subject to VAT in their home state. This means that a business with total taxable turnover below the UK VAT registration threshold of £85,000 will not have to register for VAT at all, provided their total sales of services to the EU remain below €10,000.

At the moment there is no VAT threshold for sales of digital services to other EU member states so small businesses have to account for VAT on these sales even if they fall below the VAT registration threshold. These micro businesses can find themselves having to register for UK VAT so that they can access MOSS. Otherwise, they would have to register for VAT in all the EU states where they sell their services.  

A short technical consultation on new UK regulations making these changes closes on 8 October 2018. The changes represent a simplification which was agreed at EU level in December 2017.

In 2015, the VAT rules changed so that businesses making sales of digital services across the EU had to account for VAT in each EU member state that their customers are based in. The law was further changed in 2017 to bring the VAT framework for e-commerce into line with that for e-services.

The UK's VAT MOSS scheme was established to allow UK businesses to account for VAT for online sales they make across the EU in one place, rather than having to register in every member state in which they have customers. Similar schemes operate in other EU member states.

In a note published alongside the draft legislation, the UK government said that the changes would "ease the administrative burden on businesses making sales of digital services" and "allow a group of businesses currently excluded from the MOSS scheme to access it".

Approximately 1,200 UK businesses whose supplies of digital services fall below the new €10,000 EU threshold will benefit from the changes, as will non-EU businesses which are registered for VAT for other purposes, according to the government.

Guidance for businesses if there is no Brexit deal issued by the UK government in August  confirmed that for UK businesses supplying digital services to non-business customers in the EU, the place of supply will continue to be where the customer resides and so VAT will be due in that EU member state. The guidance states that if the UK leaves the EU with no deal, UK businesses will only be able to continue to use MOSS if they register for the VAT MOSS non-Union scheme in a country which remains in the EU.

However, the UK guidance highlights the tight timescales involved in this registration, which can only be done after the UK has left the EU, and would need to be done by 10 April 2019 to cover sales made after 11 pm on 29 March to 31 March 2019. The alternative would be to register in each EU member state where sales are made.